Low volumes may trigger massive shake-up in UAE stock broking industry
Published: 14:31 October 31, 2015
Dubai: Continued low volumes on the bourses in the UAE may trigger a massive shake-up as brokerages become unprofitable, the chief executive of the country’s largest brokerage told Gulf News in an exclusive interview.
Volumes have fallen from a peak of more than Dh500 billion in 2014, when the index touched its historic peak of more than 5,000 levels to a paltry of Dh177 billion from January through September.
This is what Fathi Bin Grira, chief executive officer, Menacorp is concerned about and expects a doom scenario for smaller brokerages going ahead.
In less than two years from now, the total number of brokerages may be slashed to just 20-25 from the current 49, which caters to only 1 per cent of the market currently, Bin Grira told Gulf News.
“Consolidation won’t happen in bigger brokerages buying smaller brokerages, but companies would just disappear, or stop their operations. We have a lot of companies with less than 1 per cent market share. The brokerages can’t cover fixed costs at that level,” said Bin Grira.
“I believe that there would be greater consolidation in the companies operating in the market. Because of low volumes, it would be difficult for smaller players to operate in the market because you need scale. You can’t generate profit if you don’t have the scale,” said Bin Grira.
The UAE had more than 102 brokerages in 2008, surpassing the number of listed companies in the country, but for an efficient market, Menacorp thinks the market should have at least 20-25 brokerages.
“This would be healthy for the market because when we have 20-25 players, we have enough competition and at the same time these companies would have enough returns for them to reinvest, but today at 50 and with 1 per cent market share, you can’t,” he said.
Menacorp does not plan to buy any of the brokerages in the short-term, but Bin Grira said “if there’s any good opportunity, we would look at it seriously.”
And that’s exactly from where Bin Grira expects the next round of growth and the brokerage firm is preparing for that situation.
“It is challenging now with low volumes, it is an opportunity for us to go back to basics to go through our internal procedures, and make sure our clients receive the right kind of services. Things are far more challenging compared to the previous year and the previous quarter,” said Bin Grira.
“For us the goal is to capture the maximum market share as we can and to have proper scale to serve clients either in a bullish or a bearish phase,” he added.
Menacorp commands 15 per cent market share and has been ranked as number one brokerage from January 2013 till date.
“During challenging markets, what we have to do is make sure that we are ready for the next cycle of growth. We have invested heavily in the call centre, customer relationship management, and research,” he said, adding, “we are developing institutional service, and we want to reinforce a special private banking type service for the brokerage. The brokerage is also looking heavily on the NRI community.”
“As long as we have problems on the commodity especially oil, we don’t see any growth in volumes. If we have oil price going up at decent levels, confidence would return,” Bin Grira said.
Despite low volumes, institutional investors are still buying specific stocks in the market.
“All the international funds, who exited the market came back, and are buying specific names in real estate and banks,” Bin Grira said.
Menacorp wants more hospitality, petrochemical companies, and airlines to be listed on the stock exchanges for better diversification.